Risk and Your Forex Trading Style

The most important part of any type of investing, is knowing what your risk tolerance is. Without a good comprehension of this, it will be way too easy for you to loose all your capital. Every Forex trading strategy carries its own risk parameters and these your choice will be defined by your risk tolerance. Then there is your style of trading, conservative, moderate, and aggressive.

 At the beginning you may decide to trade a day chart. The bar movement over a day can be many of pips, so when you select your stop-loss position you have to assess what your drawdown risks are. If your money management dictates a 3% funds exposure, you will get into problems on day charts unless your account is significant.

 The 5M or 30M charts maybe more appropriate since the pip range tends to be smaller, so your stop placements can fall within your management margins.

 Yes, we all want to make money from out trades, but exposing ones account to large stop positions and vast draw-downs is going to wipe out your account and trading career in the blink of an eye.

 A practical risk level is 3% or $300 on a $10,000 account.  Change this to pips, 1 standard lot ($100,000) has a pip value of $10 so if you trade end of day and your stop loss establishment, whether count-back or support and resistance or any other, determines a 100 pip stop position, then you are not risking 3% but 30%! Three reversed trades and your account has gone!

 An aggressive trader is prepared to take riskier trades that a conservative trader. They may be prepared to expose a larger proportion of their capital in riskier trades with the hope of grabbing bigger profits – often over longer trading time frames but they may still use the similar strategies for shorter times as well. Very much the ’all risk’ trader.

 So where do you think you sit? Are you a highly controlled trader with appropriate money management and risk rates, or a trader that will take high risks for big pips? If you are the latter, you will not be trading for long, that’s a guarantee.

 If any of this leaves you a bit uncertain, you need to learn more, so begin by getting your Forex training with Top Dog Trading, you will learn a considerable amount and it will help you trade with safety to win pips not risk everything.

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